The Jobs Crisis

CIO INSIGHT: How do you view globalization and the concern Americans have for their jobs?

BHAGWATI: My view differs from Tom Friedman [New York Times foreign-affairs columnist and author of The World is Flat: A Brief History of the Twenty-First Century]. He basically argues that the rise of India and China is so dramatic in terms of skills that we're competing with people who have equal knowledge but lower wages.

And even though he's a pro-globalization guy, by talking in these terms and saying there's a flat road, he's essentially saying that India and China are coming down that flat road, so you'd better get yourself a shield and armor. He's basically celebrating the rise of these countries, because he's not an anti-globalization guy, but he's also telling us to wake up, because otherwise our jobs are going to disappear.

I think Tom is fundamentally wrong. He listens to people like my friend Nandan Nilekani, CEO of Infosys. Nilekani is a very smart guy, but he flexes his musclesmuch like Popeye, except Popeye does it on spinach and Nilekani does it on IT. Nilekani says, "We can do anything the Americans can do." Now that's true, but that's not the same thing as saying Indians will do everything the Americans can do. That's a separate economic proposition.

The developed countries still retain a huge comparative advantage. Let's look at outsourcing. What we now have, actually, is large numbers of low-value jobs being transacted on the Internet. Outsourcing of services is really the same thing as buying anything from outsidemanufacturing components, for instancebut that's traditional trade.

So if I start complaining about that, I'm really complaining about trade. And then there's the issue of protectionismthat inward-looking point of view that hurts India like hellwhich is against taking advantage of trade. So that's not what we should think about.

Senator John Kerry also mixed it up when he talked during the presidential campaign about people just pulling up a plant from Nantucket and taking it to Nairobi. Well, that's part of the whole foreign-investment issue. You'd have to be really paranoid to think that the U.S. is losing from foreign investment. We attract almost as much as we send out.

A lot of what we send out is to the poor countries. A lot of what we get is really high-value investments from places like Germany. If you go down Interstate 95 in South Carolina, there's a lot of German investment. That particular segment of Interstate 95, I'm told, is now called the Autobahn. The Germans have really lifted it up. And there are lots of examples like that.

The reason why outsourcing has become a big issue is because jobs that involve not just working with your brawn but also with your brainssemiskilled work such as call-center services, back-office operations, typing things upcan now be done elsewhere. Kinko's will actually take things to be typed to India. And people in India can call people in U.S. nursing homes ("Mr. Schwartz, it's time for your Lipitor") for 25 cents a call. That would cost $2.50 here. There would be no such job here. Mr. Schwartz would just not take his Lipitor and die.

It's important to remember that some jobs are just gone. It's not that they've been transferred elsewhere; they're just gone because they're too expensive here.

That is where a whole lot of low-value, low-wage jobs are going, and that is adding to our consumer satisfaction in many ways. That is international trade in developing countries' favor. But against that, we have large numbers of high-value jobs being created here. There's no need to panic about the rise of India and China, because there's going to be a lot of trade, and both sides are going to win.